Question

 

Here's the context in which you should write your final exam. Bronner's Christmas store is one of the largest in America. Bronners currently has one store located in Frankenmuth, Michigan. Bronner's has decided to open up a second store in Heidelberg Germany. Reflecting on each chapter in our textbook, respond to each of the following questions as though you were hired to be a consultant to Bronner's.

 

9.  What are the regional economic organizations in both Germany and the US? Will these be helpful or possible hindrances?

 

10. Please describe the exchange rates between the Euro and the dollar. What are the exchange rate risk's?

Answer 1

9. The most important regional economic organizations that the US and Germany are part of are as follows -

United States -

Asia-Pacific Economic Cooperation

Organization for Security and Co-operation in Europe

Organization of American States

NATO

North American Free Trade Agreement

Germany

European Union

Organization for Security and Co-operation in Europe

NATO

European Economic Area

These regional organizations have benefits as well as form hindrances to international trade. The benefits that this can have on the business expansion are -

1.) Due to free trade terms, there is a bigger market for the goods produced

2.) Easier terms to export produced goods and import raw materials free of trade restrictions or with minimal trade restrictions

3.) Easy access to more cheap labour from the member nations in case the treaty involves free movement of labour

4.) International movement of capital also enables more funds to start new ventures

The hindrances that can come up are -

1.) More competition from similar firms who also have access the international market

2.) Sometimes these treaty's have clauses that prevent import from or export to countries that are not a part of the organization. This will divert trade from cheaper nations for importing raw materials and to bigger markets for export of the finished products.

10. The current exchange rate between the euro and the dollar are -

1 euro = 1.08 dollars

This means for every euro that the business makes, it makes 1.08 dollars. Conversely, for every euro that the business spends in Germany, it spends 1.08 dollars.

The exchange rate risks are. -

1. If a payment to me made for a certain shipment is deferred by a period of 6 months, Broner might have to make a greater payment (in euro) if the exchange rate changes and the euro appreciates with respect to the dollar six months hence. For instance, let is say that a shipment costs 10000 euros. At the current exchange rate, Bruno has to pay 10800 (1.08 x 10000) dollars. But if the exchange rate increases to 1 euro = 1.10 dollars after six months when he makes the payment, he will have to pay 11000 (1.10 x 10000) dollars (hence losing 300 dollars)

2. Similarly, if Bruno has to receive a payment aix months hence, of lets say 10000 euros, at the present exchange rate it will amount to 10800 dollars, but six months hence if the euro depreciates to lets say 1 euro = 1.06 dollars, then his 10000 euros will only amount to 10600 dollars (and he will lose 200 dollars).